Satyam sues former brass, staff, PWC..

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Tuesday, 10 January 2012
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Tuesday, January 10, 2012

In a move that has the potential to set a precedent for India Inc, Satyam Computer Services Ltd has sued the company’s former board of directors, some of its former employees and its former auditor Price Waterhouse for their involvement in the accounting fraud.

The company, which is now being managed by the Mahindras, has filed a suit in the city civil court, Hyderabad, and has sought damages “for inter-alia perpetrating fraud, breach of fiduciary responsibility, obligations and negligence in performance of duties.”

Civil suits in India haven’t led to huge payouts running into hundreds of crores. Also, the parties to the suit always have the opportunity to settle matters outside the portals of law.

By the time the alleged fraud saw the light of the day, the company was managed by a board comprising its founder and chairman B Ramalinga Raju, his brother Rama Raju, the father of Pentium computer chip Vinod Dham, former Union cabinet secretary T R Prasad, Indian School of Business’s then-dean M Rammohan Rao, former director of IIT, Delhi V S Raju, Harvard Business School’s Krishna Palepu and another retired professor, Mangalam Srinivasan.

Satyam was taken over by the Mahindras in 2009 after its founder Raju confessed to an accounting fraud estimated to be at about Rs14,000 crore.

It was in January 2009, Raju in a letter to the market regulator agreed that an accounting fraud was committed in the company.
After the so-called confession, Raju, along with his brother Rama Raju and the former CFO Vadlamani Srinivas, were arrested by the Andhra Pradesh police. Along with them, some of the company’s employees — G Rama Krishna, Venkatapathi Raju, Srisailam and V S Prabhakar Gupta — and auditors Talluri Srinivas and S Gopalakrishnan representing PriceWaterhouse were arrested for their role in the scam.

The case was subsequently taken over by the CBI from the Andhra Pradesh police for investigation. B Suryanarayana Raju, the younger brother of senior Raju, too was charged in the case.

A charge-sheet has already been filed in the case and all the accused are out on bail. Of the accused, except Suryanarayana Raju, all of them stayed in the central prison in Hyderabad till recently.

“It is not a usual case. This will definitely set a precedent once decided since it would raise certain key questions and provide answers on the rights of the corporate entities that take over sick and closed entities or those companies that become victims of their managements,” a senior lawyer of Andhra high court said.

However, considering the nature of the case, which is civil in nature, it would be a long-drawn legal battle sometimes taking more than a decade to get decided. “In the cases of this nature, there can’t be a fast-tracking like in the criminal cases or those handled by the CBI. These cases are heard by regular civil courts and the procedures allow the respondents to challenge the case at single stage and go up to the apex court for relief. On a original suit, there can be an interlocutory application (IA) and at every IA stage, there can be a challenge,” he said.

Though the locus standi of Satyam’s new management in suing the former management, employees and auditors is set to raise some key questions, senior advocates said that the nature of a corporate entity as a going concern gives the much required right to sue to the Mahindras.

“It is only the set of people at helm of affairs has changed. The shareholders are still there in the company and the company continues to do the same business that was carried out by the old management. So, the board of directors as individuals can be charged for damages,” another senior lawyer explained.

In this case, once the petitioner is successful in proving that the old management, its employees and the auditors had a duty and certain responsibilities towards the company and the stakeholders, the court would then try and quantify the damages that can be sought.